Dragon Capital 200906

EQUITY RESEARCH
Food & Beverage/

Vegetable Oil
INITIATION OF COVERAGE June 5, 2009
Kernel Holding
The Sun in a Bottle
Analyst: Tamara Levchenko Email: research@dragon-capital.com

(+380 44) 490 7120 www.dragon-capital.ua
June 5, 2009
Kernel Holding: Initiation of Coverage Fair Value ($) 15.71

Upside (%) 60%
Highlights Sell Hold Buy

f Initiation of coverage. We initiate coverage of Kernel Holding, one of
Ukraine’s largest sunflower oil producers, with a Buy recommendation.
f Valuation implies 60% upside. Our DCF and comparative valuations put
Kernel’s fair value at $15.71/share, suggesting a 60% upside to the stock’s Company Data
current market price. Market Price ($) 9.83
f Profile. Established in the mid-1990s as an exporter of Ukrainian Market Cap ($m) 675
agricultural commodities, Kernel is a vertically integrated agro holding that Enterprise Value (09FY; $m) 824
processes sunflower seeds into bulk and bottled oil, cultivates land, Free Float (%) 40.97%
operates grain storage facilities, exports crops and sells its own agricultural
Free Float ($m) 276.2
produce. Kernel is the second-largest domestic producer of crude sunflower
oil (17% of Ukraine’s total crushing capacities). Kernel also holds a 35%
Shares Outstanding 68,741,010
share of the domestic bottled oil market. The company is one of the largest Nominal Value (UAH) -
exporters of bulk sunflower oil from Ukraine with a share of about 11%. Bloomberg Code KER PW
Besides, Kernel is among the ten largest exporters of grain from Ukraine DR Ratio -
(9% share). In June 2008, Kernel acquired a modern grain terminal in the Number of Employees 3,785
Ukrainian port of Illichivsk, planning to export 3.5 Mt of grains in the
2008/09 marketing year. The company also operates inland grain storage
facilities with combined capacity of 1.7 Mt and cultivates 85,000 ha of land
in central Ukraine, having produced 265 kt of crops in 2008.
Shareholder Structure
f Strong 2009E financials. We expect Kernel to increase net sales by 73% y-o-y to
$1.1bn in 2009FY (ending June 30th) and boost EBITDA by 65% to $204m, Namsen Ltd. - 59.03%
posting EBITDA margin of 17.7% and net margin of 10.6%. We expect a slight
y-o-y decline in net margin due to the revaluation of bank debt caused by Free Float - 40.97%
hryvnia depreciation. In 9M09FY, Kernel Holding reported net sales of $865.9m
(+75% y-o-y), EBITDA of $160.5m (+109%) and net income of $110.3m (+174%).
The company posted 9M09FY EBITDA margin of 18.5% (+3.0pp y-o-y) and net
margin of 12.7% (+4.6pp).
f Outlook. Kernel continues building a greenfield multi-seed crushing plant 12-month Price Performance ($)
in Mykolayiv region with planned processing capacity of 510 kt of seeds
24 Kernel KP-Dragon (rel.)
p.a. to be commissioned in fall 2009. The company also plans to expand the 20
crushing capacity of its Prykolotne plant by 153%, to 430 kt of seeds p.a. in 16
2011FY. This will substantially increase the company’s seed crushing 12
capacity, to 1,680 kt p.a. from 930 kt currently, making it the No. 1 domestic 8
producer on this measure. 4
0
Jun-08 Aug-08 Sep-08 Nov-08 Jan-09 Mar-09 Jun-09
Valuation Summary
Year (ended June 30)* 2007FY 2008FY 2009FYE 2010FYF 2011FYF 12-month Performance (34%)
Net Sales ($m) 350.4 663.1 1,148.7 1,263.5 1,408.0 12-month Rel. Perform. (KP-Dragon)* 135%
EBITDA ($m) 46.4 123.2 203.7 154.3 185.4 12-month Low/High 3.93/17.30
Net Income ($m) 18.6 82.2 122.2 90.0 120.1 All-time Low/High 3.93/17.30
P/E 36.3 8.2 5.5 7.5 5.6 12-month Trading Volume ($m) 1.8
EV/EBITDA Note: *Relative to KP-Dragon Index
17.1 6.5 4.0 3.9 3.0
EV/Sales 2.27 1.21 0.72 0.47 0.39
P/Book 8.69 1.53 1.85 1.06 0.89
Note: * The company reports its operating and financial results in marketing years, each ending on June 30. Thus all results and forecasts in this report are
stated in financial years ending in June (e.g. 2008FY).
Kernel Holding: The Sun in a Bottle 2

June 5, 2009
Table of Contents
Kernel Holding Overview 4

Sunflower Oil Production, Refining, Bottling and Export 4
Grain Export, Silo Services and Farming 11
2008FY and 9M09FY Financials Overview 14
Operating & Financial Outlook 17

Sunflower Oil Division 17
Grain Trade, Transshipment and Silo Services Outlook 19
Farming 20
Kernel Net Sales and Profitability Forecast 20
Valuation 21
DCF Model 21
Comparative Valuation 22
Recommendation 22
Risks 23
Operating & Financial Summary 25
Appendix 1: Kernel Holding Management Team 26
Appendix 2: Ukraine’s Vegetable Oil Market 27
Appendix 3: Kernel Site Visit (Apr. 2-3, 2009) 31

June 5, 2009
Kernel Holding Overview

SUNFLOWER OIL PRODUCTION, REFINING, BOTTLING AND EXPORT
Started in the mid-1990s as an exporter of Ukrainian agricultural commodities, Started in the 1990s as a grain
Kernel was originally an asset-light trading company. It later acquired grain silos in exporter…
support of grain origination and started to expand into other businesses, in
particular vegetable oil production, to become a leading diversified agro holding in
Ukraine.
• In 2002, Kernel acquired a sunflower seed crushing plant in Poltava, thus
expanding into the oil processing business. Concurrently, the company
started to accumulate an agricultural land bank, usually close to its grain
silos.
• In 2004, Kernel acquired domestic oil brand Shchedriy Dar (Generous
Gift), together with crushing, refining and bottling facilities located in the
eastern region of Luhansk.
• In 2006, Kernel acquired another bottled oil brand, Stozhar, as well as the
production assets of Evrotek, its major domestic competitor active in both the
bottled oil business and agribusiness and benefiting from a dominant market
position in Kharkiv region, which borders on Poltava region. As a result,
Kernel became a leading producer and seller of sunflower oil in Ukraine.
• In 2007, Kernel acquired exclusive rights to produce and sell bottled sunflower
oil under another well known domestic consumer brand, Chumak.
Today Kernel is a diversified agro holding that cultivates land, processes sunflower …Kernel has since grown into a
seeds into bulk and bottled oil, operates grain storage facilities, exports crops and vertically integrated holding
sells its own agricultural produce. In November 2007, the company completed an
IPO on the Warsaw Stock Exchange, raising $221m.
Grain & oilseeds

Farming
purchase
Logistics & Storage

Bulk crude
sunflower oil exports
Sunflower seed
Grain exports
crushing
Meal exports
Sunflower oil
Grain Grain Port
refining
Bulk refined Trade Transshipment
sunflower oil exports Services
Sunflower oil
bottling
Bottled sunflower oil

sales & exports
Kernel Business Structure*

Note: *Revenue-driving segments are marked in bold; Source: Company

June 5, 2009
Kernel Holding operates three sunflower seed crushing plants: Poltava Oil Extraction Kernel’s sunflower seed crushing
Plant (OEP) with annual operating capacity of 430,000 tonnes (430 kt) of sunflower capacity totaled 930 kt/year as of
seeds), Prykolotne OEP (operating capacity of 170 kt/year) and Volchansk OEP (330 March 2009
kt/year). The three plants’ combined capacity of 930 kt/year accounted for 21% of
Ukraine’s total in the 2008/09 season, making Kernel the second-largest domestic seed
crusher on this measure. However, the company is set to become the largest in this
industry already this fall when it launches a greenfield multi-seed crushing plant in
Mykolayiv region with planned processing capacity of 510 kt of seeds p.a.
Kernel Holding
21%
Allseeds Oil Extraction Plant Capacity (kt/year)

15% Poltava 430
Cargill Prykolotne 170
24% Volchansk 330
Bunge Total 930
Kernel’s Seed Crushing Capacities
11% Source: Company
Others
29%
Ukraine Seed Crushing Capacity Breakdown (2007/08)
Source: Company
Kernel also operates two oil refining and bottling facilities installed at its Poltava The company can bottle more
and Prykolotne crushing plants, capable of producing about 135 kt of bottled than 135 kt of sunflower oil per
sunflower oil annually. The company markets its bottled oil under the brands year
Shchedriy Dar, Stozhar, Chumak Domashnya, Chumak Zolota and Lyubonka,
holding a 35% market share domestically.
In Ukraine, Kernel’s oil can be found in over 45,000 points of sale. The company A wide distribution network
also exports about 20% of its bottled oil output. Kernel has produced bottled oil
under the private label Natura Verde for Metro Cash & Carry since 2005. It also
bottles oil under the private label Premiya for another large domestic retailer,
Fozzy Group (since 2006). Additionally, Kernel has private label agreements for
bottled oil with Velyka Kyshenya and Tavriya-V retail chains.
CIS Bunge
10.0% 27%
Kernel Holding
35%
Middle East
Ukraine 6.0%
81.0% Slaviya
Russia 5%
2.0%
Others
1.0% Others
33%
Kernel Bottled Oil Sales by Destination (2007/08) Bottled Sunflower Oil Sales in Ukraine
Source: Company (volume; 2007/08)
Source: Company

June 5, 2009
Kernel is one of the largest exporters of bulk sunflower oil from Ukraine with a One of the largest sunflower oil
share of about 11%. The company exports oil to the CIS, the EU, Asia and North exporters in Ukraine
Africa.
Allseeds India
13.0% Kernel Holding 18%
11.0% Turkey
12%
Cargill EU
Bunge 30%
28.0% CIS
9.0%
10%
Egypt
Others Others 8%
39.0% 22%
Ukraine Bulk Sunflower Oil Export Destinations

Bulk Sunflower Oil Exporters in Ukraine(2008/09E)
Source: Company
(volume; 2008/09E)
Source: Company
Kernel’s closest competitors include local subsidiaries of Cargill and Bunge as well Competitors
large domestic oil processor Allseeds. Cargill operates two crushing plants, in Donetsk
and Kakhovka (Kherson region), with total estimated crushing capacity of 950 kt of
seeds p.a. but no refining or bottling facilities. Bunge operates a crushing, refining and
bottling plant in Dnipropetrovsk and a crushing plant in Illichivsk (Odesa region). The
Dnipropetrovsk OEP has annual crushing capacity of 450 kt of seeds while the
Illichivsk plant can process about 400 kt of sunflower seeds annually. Bunge produces
bottled sunflower oil under the brand Oleina, accounting for an estimated 27% of the
domestic retail market. Allseeds operates two crushing plants in Kirovohrad and
Mykolayiv with total estimated crushing capacity of 600 kt of seeds per year and no
refining or bottling facilities.
Chumak Schedry Dar

(Kernel) (Kernel) Supermarkets
11.0% Slaviya (Pology) Open Markets
13.0% 44%
7.0% 27%
Oleina (Bunge) Stozhar (Kernel)

27.0% 7.0% Slavoliya
(Slavoliya)
3.0%
Dykanka HoReCa
Private Label Lyubonka (Ukroliya) 5% Traditional Retail
Others (Kernel) (Kernel) 3.0% 24%
25.0% 2.0% 2.0%
Top Ukrainian Bottled Oil Brands (2008/09E) Kernel Domestic Distribution Channels (2008/09E)
Source: Company Source: Company

June 5, 2009
Kernel’s produced goods are moved by rail and road. The company owns a fleet of Logistics
over 40 trucks, which covers 20% of its road transportation needs, and also
outsources vehicle transportation from more than 10 providers. Trucks mainly
deliver oil seeds to crushing plants and bottled oil to domestic distributors, with an
efficient radius of transportation of up to 300 km.
Own Railway
Truck Transportation
Trucks Transportation
3rd Party 70%
20% 30%
Trucks
80%
Kernel Holding Transport Usage

Source: Company
Kernel’s logistics center is located in Poltava and has a total storage area of 8,000 Kernel works directly with
m2. The company operates through a nationwide distribution network that consists leading retail chains
of 60 regional distributors. Kernel also works directly with the eight largest
Ukrainian retail chains. It pursues the same pricing policy with respect to
distributors and retail chains regardless of their location, setting recommended
prices for end-consumers. Kernel estimates distributor mark-ups on bottled
sunflower oil at 5-8% and supermarket mark-ups at 15%. Open markets and other
retail outlets set a mark-up of about 20%.
Kernel Holding marketed 171 kt of bulk crude sunflower oil, up 18% y-o-y in the Kernel Holding bottled oil sales
financial year ended June 2008. Its bottled sunflower oil sales totaled 95.1 kt over reached 95.1 kt in 2008FY
the period (+42% y-o-y thanks to the acquisition of brands Chumak Zolota and
Chumak Domashnya), which allowed the company to both satisfy domestic market
needs and export about 15% of total output. Sales of refined oil, left after bottling
and exported, reached an est. 25 kt in 2008FY (-38% y-o-y).
95 200 Refined Sun Oil Sale s (kt)

100 Bottled Oil Sales (kt)
Crude Sun Oil Sale s (kt) 25
74 72 76 40
75 150
50 100
35 9 171
25 145
25 50
79 68
0 0
2005 2006 2007 2008 9M08 9M09 2005 2006 2007 2008
Kernel Holding Bottled Sun Oil Sales Dynamics Kernel Holding Crude & Refined Sun Oil Sales Dynamics
(2005-1H09FY) (2005-08FY)

June 5, 2009
Prices for sunflower oil and sunflower seeds peaked in February 2008 at $1,639/t Gross margin on sunflower oil
(net of VAT; +207% y-o-y) and $747/t (+258% y-o-y), respectively. The difference ranges 20-25%
(net of crushing and transportation costs) reached $800-815/t over the same period.
As of end-April 2009, sunflower oil traded at $595/t (net of VAT; -60% y-o-y), while
sunflower seeds were marketed at $243/t (-65% y-o-y), implying a net difference of
$280-305/t (-65% y-o-y). However, the gross margin on sunflower oil production
remained flat y-o-y last month at an est. 20-25%.
2,000 Bulk Crude Sun Oil Prices ($/t; incl. VAT, EXW)
1,750 Sunflower Seed Prices ($/t; incl. VAT; EXW)
1,500
$800 net difference*
1,250
1,000
750
500 $280 net difference*
250
0
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-0 9
Ukraine Sunflower Seed and Oil Avg. Price Dynamics (2008-May’09)

Note:*Net of VAT and seed crushing costs ($20-35/t) and delivery to Illichivsk sea port ($25-35/t); Source:
UkrAgroConsult
Sunflower meal, a byproduct of sunflower seed crushing, currently trades at $131/t Sunflower meal currently trades
(EXW; incl. VAT), down from an est. $412/t in February 2008. Kernel burns 100% of at $131/t (EXW)
its sunflower husk (another byproduct of sunflower seed crushing) for heating
purposes.
2,250 Bulk Sunflower Oil Prices ($/t, incl. VAT, EXW)

2,000 Sunflower Seed Prices ($/t, incl. VAT; EXW)
Sunflower Meal Prices ($/t, incl .VAT; EXW)
1,750
1,500
1,250
1,000
750
500
250
0
Jan-08 Mar-08 May-08 Jun-08 Aug-08 Oct-0 8 Dec-08 Feb-09 Apr-09
Ukraine Sunflower Seed, Meal and Bulk Sunflower Oil Weekly Average Prices
(2008-May ’09)
Source: APK-Inform
Bottled sunflower oil currently sells for $1,235/t (-50% y-o-y; EXW, incl. VAT) and Kernel earns $350-400 more per
crude sunflower oil for $826/t (-57% y-o-y). Kernel thus can earn an extra $350-400 per tonne of bottled oil vs. bulk oil
tonne of bottled sunflower oil vs. crude oil sales. In 2008, the company was earning
$640 per tonne of bottled sunflower oil on average. Kernel’s costs of sunflower oil
refining average $15-20 per tonne of refined oil while bottling costs range $112-115 per
tonne of bottled oil. The company’s net gain on bottled oil thus totals $220-265/t.

June 5, 2009
Bottled Sunflower Oil Prices ($/t, incl. VAT; EXW)

2,750 Refined Sunflower Oil Prices ($/t, incl. VAT; EXW)
2,500 Crude Sunflower Oil Prices ($/t, incl. VAT, EXW)
2,250
2,000
1,750
1,500
1,250
1,000
750
500
250
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09
Crude, Refined and Bottled Sunflower Oil Weekly Prices in Ukraine (2008-May ’09)
Source: APK-Inform
Kernel’s major production cost component is sunflower seed, which accounts for Sunflower seeds account for
more than 90% of crude oil costs and up to 80% of bottled oil costs. All the more than 90% of crude oil
company’s production costs except for overheads are variable. The share of energy- production costs
related expenses (electricity, steam, diesel etc.) is not significant and constitutes less
than 5% of total production costs.
Other
Labor 0.3% Bottling
0.9% 9%
Labor
Utilities 4%
Sunflower seeds Sunflower seeds
2.3% Crushing
90.8% 77%
4%
Overheads
5.7% Overheads
4%
Refining
2%
Kernel Holding Crushing Costs (2008/09E) Kernel Holding Bottled Oil Production Costs (2008/09E)
In absolute terms, Kernel’s seed crushing costs average $20-35 per tonne of crude Delivery costs
sunflower oil. Delivery costs range from $35/t (FOB Illichivsk) for crude sunflower
oil to $20-30/t (DAF Belarus) for refined oil in bulk and to $50-55/t (DAF Belarus)
for sunflower meal.

June 5, 2009
Payroll
12.0% Utilities
2%
Direct materials
Direct materials 94%
Utilities 64.0% Payroll
24.0% 4%
Kernel Holding Refining Costs (2008/09E) Kernel Holding Bottling Costs (2008/09E)
In 2008, bulk crude sunflower oil and fodder meal accounted for the largest share Crude sunflower oil and meal
of 49% of Kernel’s total revenues (+3.5pp y-o-y). Grain exports contributed 26% of accounted for 49% of Kernel’s
total (-8.2pp y-o-y) and bottled sunflower oil 22% (+6.0pp y-o-y). Overall, Kernel 2008FY sales
derived 71% of its 2008FY revenues from the sunflower oil segment.
Bottled
Payroll &
Sunflower Oil Grain Silo Related Costs
22.2% Services 3.2%
2.8% Depreciation
1.9%
Other
Grain Trade 0.2% Cost of Goods
25.8% for Resale & Rental Payments
Raw Materials 0.3%
Bulk Crude Used Other
Sunflower Oil & 93.7% 0.9%
Meal
49.0%
Kernel Holding Revenue Structure (value; 2008FY) Kernel Holding COGS Structure (value; 2008FY)
The cost of goods for resale and raw materials used constituted the lion’s share of Cost structure
Kernel’s COGS in 2008 (94%; +2.7pp y-o-y). Payroll and related costs accounted for
3% (-1.9pp y-o-y) of total costs.
Kernel’s customers for bulk oil products are primarily international trading houses Customers
or wholesalers and processors in importing countries (the EU, Mediterranean basin
and Middle East), such as Glencore of Switzerland, Nidera in the Netherlands,
Alfred C. Toepfer in Germany, Bunge in the USA. Kernel sells bulk oil to refiners
and bottlers producing for their home markets, such as SOS Cuetara and Migasa in
Spain and Diem SA in Greece. The company also sells oil to producers of bio-fuels
such as Saipol in France. In addition, Kernel supplies protein meal to feed
compounders such as Agro Supply A/S and DLA Agro in Denmark and
Ravagricola in Italy. The company sells bulk grain or oilseed cargo to wholesalers
and processors in Israel, Spain and Greece. Kernel’s customers for bottled oil
products are Ukrainian nationwide retailers such as Fozzy Group, Metro Cash &
Carry, ATB Market, Intermarket, Furshet. None of Kernel’s customers accounts for
a significant portion of the company’s annual sales.

June 5, 2009
GRAIN EXPORT, SILO SERVICES & FARMING
Kernel Holding is among the ten largest exporters of grain from Ukraine. The Kernel is one of the ten largest
company exports wheat, barley and corn, which jointly account for about 80% of its grain exporters in Ukraine
total grain exports, as well as soya beans, rapeseed and peas. Key destinations are
the CIS, the EU, Asia and North Africa.
Glencore Berdyansk
Alfred C. Yuzhny Mariupol
13% 9%
Toepfer Int. Cargill 12% 6%
15% 11%
Mykolayiv
Bunge (Nibulon)
Nibulon 11% 17%
16% Illichivsk
Kernel (Kernel)
Other 10% Odessa 34%
15% Louis Dreyfus 22%
9%
Breakdown of Ukrainian Grain Exports by Sea Port (volume;
Ukraine’s Major Grain Exporters (volume; 2008/09E)
2008/09E)
Source: Company
Source: Company
In the marketing year 2007/08 (July-June), Kernel exported 317 kt of grains, down Grain exports surged
from 550 kt in 2006/07. Such a relatively low volume was largely due to the grain to 1.8 Mt in 9M09FY
export ban imposed by the Ukrainian government and is therefore not
representative. Kernel delivered and exported 1.8 Mt of grain in 9M09FY. Grain
export volumes targeted for 2009FY have already been largely achieved.
Barley
2,000 Grain Sales (kt) 1,801
29%
1,500
Corn
25%
1,000
710
520 550
500 317 Other
35% Milling Wheat
0
11%
2005 2006 2007 2008 9M09
Kernel Holding Grain Sales Dynamics (2005-08FY) Kernel Holding Grain Export Breakdown (2008FY)
In June 2008, Kernel acquired a grain terminal in the port of Illichivsk for $95m. The Recent grain terminal acquisition
Illichivsk terminal is Ukraine's second-largest modern grain port terminal after the
Odesa terminal. Illichivsk can handle over 4.5 Mt of crops a year and its capacity can be
expanded. It has a storage capacity of 200 kt of crops. Two 11.5 meter deep moorings
allow simultaneous loading of two deep-sea vessels at a rate of 900 tonnes per hour.
The terminal offers a gateway for 20% of Ukraine’s grain exports.
In 9M09FY, the Illichivsk terminal handled 51% of Kernel’s grain trade volume in value Kernel sells about 50% of its
terms. The company exports grain via other major grain terminals in Ukraine grain volume through Illichivsk
depending on the location of grain purchases and delivery costs.

June 5, 2009
Kernel’s terminal handled 2.3 Mt of grain in 9M09FY and with 6-7 Mt of grain to be Total grain throughput may top
exported from Ukraine in 4Q09FY, the terminal might exceed throughput of 3.3 Mt 3.3 Mt in 2009FY
in 2009FY, according to company estimates.
Grain prices have recovered slightly since the beginning of 2009 after plunging in Grain prices have recovered
4Q08. As of May 29, milling wheat (4th grade) traded at $128/t (EXW, incl. VAT), slightly since the beginning of
down 53% y-o-y but up 16% YTD. In July 2008-May 2009 (Kernel’s 11M09FY), 2009
milling wheat (4th grade) prices averaged $163/t (EXW, incl. VAT). Corn traded at
$143/t (EXW, incl. VAT) at the beginning of May (-42% y-o-y and +77% YTD) and
averaged $138/t (EXW, net of VAT) in 11M09FY.
300 300
250 250
200 200
150 150
100 100
50 50
0 0
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-0 8 Feb-09 Apr-09 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-0 8 Feb-09 Apr-09
th
Wheat 4 Grade Avg. Weekly Prices in Ukraine Corn Avg. Weekly Prices in Ukraine
(EXW; VAT incl., $/t, 2008-May’09) (EXW; VAT incl., $/t, 2008-May’09)
Source: UkrAgroConsult Source: UkrAgroConsult
Barley traded at $115/t (EXW, incl. VAT) as of May 29, down 50% y-o-y and +26% Barley currently trades at $118/t
YTD. In 11M09FY, barley prices averaged $138/t (EXW, incl. VAT). Respective
soybean prices (current and 11M09FY) total $472/t (EXW, incl. VAT), down 32% y-
o-y and up 82% YTD, and $423/t (EXW, incl. VAT).
300 800
250 700
600
200 500
150 400
300
100
200
50 100
0 0
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Feb-09 Apr-09 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-0 8 Feb-09 Apr-09
Barley Avg. Weekly Prices in Ukraine Soybean Avg. Weekly Prices in Ukraine
(EXW; VAT incl., $/t, 2008-May’09) (EXW; VAT incl., $/t, 2008-May’09)
Ukrainian agro producers are not selling rapeseed currently, waiting for the next Rapeseed is traded seasonally
spike in prices. The crop peaked at $610/t (EXW, incl. VAT) in July 2008 and
plunged to $292/t (EXW, incl. VAT) in December last year.

June 5, 2009
700
600
500
400
300
200
100
0
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Feb-09 Apr-09
Rapeseed Avg. Weekly Prices in Ukraine
(EXW; VAT incl., $/t, Jan. 11, 2008-May. 15, 2009)*
Note: *Rapeseed trades seasonally; Source: UkrAgroConsult
In 2008FY, Kernel Holding exported grains for $171m (+44% y-o-y) and reported an Kernel earns 13% EBIT margin
EBIT margin of 19.6% (+11.5pp y-o-y) in this segment. In 9M09FY, the company’s on grain exports
EBIT margin on grain exports went down to 13.4% as average grain sale prices
declined to $274/t (incl. carriage and freight costs) from $540/t in 2008FY. Kernel’s
carriage and freight costs totaled about $30-35/t in 9M09FY.
Kernel Holding owns and operates one of the largest networks of grain elevators in Silo network
Ukraine consisting of 25 grain silos with total storage capacity of 1.7 Mt of crops
(est. 6% of Ukraine’s total grain storage facilities). The location of silos in the
Poltava and Kharkiv regions ensures the most efficient sourcing of oilseeds for
Kernel’s crushing plants and a commanding position for the origination of grain.
Flexible storage conditions ensure fast and efficient grain intake and delivery for
shipment. In 2008FY, capacity utilization of Kernel’s silo network averaged 50-60%,
while in 9M09FY the company reported a utilization rate of 106%.
In 9M09FY, Kernel reported a 37.8% EBIT margin on silo grain storage services, Kernel’s EBIT margin on silo
with total revenues from the silo segment of $37m (+85% y-o-y). The company’s storage averages 35-38%
storage costs (drying, cleaning, etc.) are estimated at $10/t, while the storage fee
averaged $15/t in 9M09FY.
Kernel currently leases 85,000 ha of agricultural land and continues expanding its Kernel operates 85,000 ha of land
land bank. The company plans to increase its land area to 100,000 ha in 2010FY
(+28% y-o-y) and add another 50,000 ha in 2011FY. Kernel’s land lease contracts
average 5 to 10 years. While own production is not intended to render the company
self-sufficient in grain, Kernel plans to continue expanding into farming business
due to its intrinsic profitability.
Winter
wheat
Other 28.8%
6.4%
40% 19% Spring
19% Sunflower
barley
19% 9.1% seeds
Peas 20.0%
3% 9.2%
Corn Soy
10.1% 16.3%
Kernel Holding Acreage Breakdown

Kernel Holding Leased Land and Crushing Plants Location (2009FY) (2008FY)

June 5, 2009
Kernel’s farming operations are concentrated in five regions of Ukraine, all Kernel harvested 265 kt of grain
providing prime soil conditions for sunflower seed cultivation: Poltava region (40% and oil crops in 2009FY and sold
of Kernel’s total land area), Cherkasy, Kirovohrad and Kharkiv (19% each) and it to its own export division
Odesa (3%). The company has focused on land lease in regions close to its crushing
capacities (Poltava and Kharkiv). In 2008FY, Kernel harvested 68 kt of grain and oil
crops, which generated 3% of its revenues for the period. In 9M09FY, Kernel
harvested 265 kt of grain and oil crops, exceeding its target of 255 kt. About 85% of
Kernel’s farm produce is sold at market prices to the company’s grain export
division.
2008FY AND 9M09FY FINANCIAL OVERVIEW*
Kernel Holding increased its net sales by 89% y-o-y to $663.1m in 2008FY. The Kernel reported 2008FY net sales
significant price increases on both grain and oil crops markets in the first three of $663.1m (+89% y-o-y)...
quarters of 2008FY helped Kernel improve margins and earnings in absolute terms.
The company’s 2008FY EBITDA margin increased by 5.4pp y-o-y to 18.6% and
EBIT margin totaled 16.8% (+5.8pp y-o-y).
Net Sales ($m; lhs) EBITDA margin (%; rhs)

800 Net margin (%; rhs) 20%
600 15%
865.9
400 10%
663.1
78.1 493.6
200 5%
16.2
5.7
0 0%
2005FY 2006FY 2007FY 2008FY 9M08FY 9M09FY
Kernel Holding Revenues and Profitability Margins (2005FY-1H09FY)
Sources: Company, Dragon Capital estimates
In 9M09FY, Kernel Holding reported net sales of $865.9m (+75% y-o-y), EBITDA of ...and 9M09FY sales of $865.9m
$160.5m (+109%) and net income of $110.3m (+174%). Kernel’s 9M09FY gross margin (+75% y-o-y)
increased by 8.2pp y-o-y to 30.9% thanks in part to the hryvnia depreciation and its
effect on hryvnia-denominated costs. The company posted 9M09FY EBITDA margin of
18.5% (+3.0pp y-o-y) and net margin of 12.7% (+4.6pp). This significant increase in
margins is essentially a consequence of the hryvnia depreciation in 2Q09FY: as the
value of inventory bought previously is converted back from hryvnia into dollars at a
new and lower exchange rate, the cost of goods delivered in 3Q09FY, in execution of oil
and grain export contracts, is correspondingly lower, leading to a substantial increase in
profitability margins. Additionally, the company said its net debt decreased to $158m
as of Mar. 31, 2009, from $245m on Mar. 31, 2008.
Note: * The company reports its operating and financial results in marketing years, each ending on June 30. Thus all
results and forecasts in this report are stated in financial years ending in June (e.g. 2008FY).

June 5, 2009
75%
EBIT Margin (%; 9M08FY) EBIT Margin (%; 9M09FY)
51%
50%
38%
21% 23% 25%

25%
16% 17%
14% 13%
9%
0%
(7%)
Bulk Oil&Meal
Bottled Oil
Silo Services
Grain Trade
Transship ment
(25%) Farmin g
Grain
Kernel Holding EBIT Margin Breakdown by Product (9M08FY-9M09FY)

Kernel’s grain transshipment services and in-country silo services gave the company Grain transshipment and silo
the highest EBIT margins of 51% and 38%, respectively, across all its business segments services were the most profitable
in 9M09FY. Kernel’s farming division, however, performed worse at -7% EBIT margin in 9M09FY
and about 0% EBITDA margin over the period. This was caused by low soft
commodity prices and high production costs incurred during the 2008 sowing season.
Bottled Grain Silo

Sunflower Oil Grain Silo Services
12.4% Services Bottled 8.4% Grain Handling
3.3% Grain Handling Sunflower Oil & Transshipment
Bulk Crude & Transshipment 14.2% 11.7%
Sunflower Oil & 2.2%
Meal Farming
23.6% 0.6%
Bulk Crude
Sunflower Oil &
Meal Grain Trade
26.0% 39.6%
Grain Trade
57.8%
Kernel Holding Revenues Breakdown (value; 9M09FY) Kernel Holding EBIT Breakdown (9M09FY)
In 9M09FY, Kernel exported 1.8 Mt of grain, earning $493m, or 58% of its revenues over Grain trade accounted for the
the period. Grain handling and transshipment services for other grain traders in the largest share of 58% of Kernel’s
port of Illichivsk generated $19m (2.2% of total revenues). Sunflower oil revenues were 9M09FY revenues…
$307m in 9M09FY (both bulk and bottled oil; 36% of total revenues).
Grain trade also brought the largest share (40%) of Kernel’s operating profit in 9M09FY, …and 40% of operating profit
or $66m in absolute terms. The sunflower oil division reported EBIT of $67m over the
period, contributing 40% of total operating profits.
Kernel Holding outperforms its international peers based on 2009FY EBITDA Kernel Holding outperforms
margin of 17.7% (we restated peers’ profitability margins to match Kernel’s international peers on 2009FY
financial year ending in June). Large global grain traders such as ABB Grain, EBITDA margin
Graincorp, Vittera and Archer-Daniels-Midland expect 2009FY EBITDA margins of
5.5-7.1%, while large international vegetable oil producer and grain trader Bunge,
Kernel’s closest peer, expects 3.9%.

June 5, 2009
Kernel Holding 17.7%
ABB Grain 7.1%
Graincorp 6.7%
Vittera 5.6%
Archer-Daniels-Midland 5.5%
Bunge 3.9%
0% 5% 10% 15% 20%

EBITDA Margin: Kernel Holding vs. International Peers (2009FYE)*
Note:*Peers’ margins were restated to match Kernel’s financial year ending in June;
Sources: Company, Bloomberg, Dragon Capital estimates

June 5, 2009
Operating & Financial Outlook

SUNFLOWER OIL DIVISION
This fall (2010FY), Kernel plans to complete the construction of a greenfield multi- Capacities upgrade and
seed oil extraction plant (OEP) with annual crushing capacity for 510 kt of seeds in Bandurka greenfield project
Mykolayiv region. The new plant was almost 50% complete as of May 15, 2009. The
company also plans to expand the crushing capacity of its Poltava OEP by 72% to
430 kt of seeds p.a. in 2009FY. This capacity upgrade was almost 90% complete as
of May 15. Kernel’s Prykolotne OEP is scheduled to be upgraded in 2011FY, to 430
kt of seeds p.a. The company’s total seed crushing capacity would thus amount to
1,680 kt p.a. by 2012FY, or an estimated 38% of Ukraine’s total crushing capacities
as of end-2008, up from 930 kt currently (21% of total). As of end-May 2009, Kernel
planned to complete all aforementioned capacity upgrades on time.
2,000 Poltava Prykolotne Volchansk Bandurka (multi-seed)
1,500 510
510
1,000 330
330 330
330 430
500 170 170
170
430 430 430
250
0
2008FY 2009FYE 2010FYF 2011FYF
Kernel Holding Crushing Capacities (2008FY-2011FYF)

Sources: Company
We expect Kernel to be able to load its projected new crushing capacities in the future Ability to load new capacities
based on the following reasoning. First of all, the new 510 kt crushing facility is a multi-
seed plant, allowing Kernel to process not only sunflower seed but also soybean and
rapeseed. Secondly, to load a large crushing facility one would need a developed
infrastructure for purchasing and delivering raw materials. Kernel Holding owns 1.7
Mt of inland storage capacities, particularly near its oil extraction plants and all over
Ukraine, which ensures fast and efficient seed intake and delivery and thus
provides an advantage over small domestic crushers who have limited access to
storage and are forced to buy seeds off-season at high prices. Last but not least, small
crushers could face working capital problems in terms of limited credit resources, thus
might even idle their plants in the medium term.
We estimate the planned capacity expansion will enable Kernel to increase its bulk Production of crude bulk
crude sunflower oil production at an 11% CAGR in 2009-16FY, bringing it to 689 kt of sunflower oil is estimated to
oil and 558 kt of fodder meal in 2016FY. However, such growth is subject to raw increase at 11% CAGR
material supply risk, as Kernel purchases more than 98% of sunflower seeds from in 2009-16FY
farmers, who in turn are exposed to weather risk. Kernel’s sunflower oil extraction and
fodder meal rates are forecasted to average 45% and 36.5%, respectively, over the
period.

June 5, 2009
Fodder Meal Output (kt)

1,800 Bulk Crude Sunflower Oil Output (kt)
1,505 1,530
1,600 Sunflower Seeds Crushed (kt)
1,400 1,381
1,149
1,200
930
1,000
800 677 689
621
517 549 558
600 419 504
419
400 339
200
0
2009E 2010F 2011F 2012F 2013F
Kernel Holding Crude Sunflower Oil & Meal Production (2009FY-2013FYF)
In the refined sunflower oil segment, we estimate Kernel’s capacity to increase from Bottled oil production to grow at
138.5 kt in 2009FY to 156.5 kt by 2013FY. We forecast the company to increase refined 3% CAGR
oil production at a 3% CAGR over 2009-16FY, to 148.7 kt in 2016FY. We project the
company will bottle almost 85% of its refined oil output and market it domestically,
with the remaining sunflower oil volume to be exported.
175 Bottled Oil Sales (kt) Refined Oil Sales (kt)
150
25 26 26
125 23 23
100
75
111 113 122 123 123
50
25
0
2009E 2010F 2011F 2012F 2013F
Kernel Holding Refined & Bottled Oil Sales (2009FY-2013FYF)
We estimate Kernel’s bulk crude sunflower oil price to average to $925/t in 2009FY Sunflower oil price assumptions
(incl. VAT; -29% y-o-y), above Ukraine’s estimated average of $866/t (incl. VAT; -43%
y-o-y) because the company was pre-selling its future sunflower oil output before
2009FY started in July at peak prices of $1,600-1,700/t (incl. VAT). In 2010FY, we
expect Kernel’s bulk crude sunflower oil price to decline by 5% y-o-y to $879/t,
which basically reflects current market prices. We projected Kernel’s crude sunflower
oil prices to stay unchanged y-o-y in 2011-16FY as agro markets’ high volatility and
cyclical nature preclude a more accurate price forecast. We estimate Kernel’s refined
sunflower oil prices at $1,010/t in 2009FY (-32% y-o-y), $960/t (-5% y-o-y) in 2010FY
and unchanged afterwards. Prices of bottled oil, Kernel’s top value added product,
are less volatile than crude sunflower oil prices. We forecast them to average $1,300/t
($1.5/liter) in 2009FY (-16% y-o-y), $1,235/t in 2010FY (-5% y-o-y) and remain
unchanged over 2011-16FY. Finally, fodder meal, a byproduct of sunflower oil,
should be priced at $155/t in 2009FY (-40% y-o-y), $147/t in 2010FY (-5% y-o-y) and
stay unchanged afterwards.

June 5, 2009
Bulk Crude Oil Avg. Annual Price ($/t) Refined Oil Avg. Annual Price ($/t)
2,000 Bottled Oil Avg. Annual Price ($/t) Fodder Meal Avg. Annual Price ($/t)
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
2008 2009E 2010F 2011F
Kernel Holding Prices (2008-2013FY)

GRAIN TRADE, TRANSSHIPMENT AND SILO SERVICES

In 2009FY, Kernel Holding plans to export 3.5 Mt of grain following the acquisition of Kernel plans to export 3.5 Mt of
the Illichivsk terminal in June 2008. The company exported 2.9 Mt as of end-9M09FY, grain crops in 2009FY
including 1.8 Mt of own exports and 1.1 Mt of grain transshipped through the port of
Illichivsk. We estimated the average purchase price of grain crops for Kernel at $180/t
(-31% y-o-y) in 2009FY and set it unchanged afterwards. Freight costs were estimated at
$30/t in 2009FY with subsequent annual increases of 2% in the 2010-16F marketing
years. Finally, we project Kernel’s transshipment fee at $63/t on average in 2009FY and
$30-32/t in 2010-16FY.
Grain Trade (kt; lhs) Grain Transshipment (kt; lhs)

6,000 Silo Storage Utilization Rate (%; rhs) 125%
5,000 100%
4,000
75%
3,000
50%
2,000
3,256 3,386 3,488 3,557
2,813 2,953 3,101
2,250 25%
1,000
0 0%
2009E 2010F 2011F 2012F 2013F 2014F 2015F 2016F
Kernel Holding Grain Trade, Transshipment and Silo Service Volumes (2009-2016FY)
Kernel owns 1.7 Mt of silo storage capacity inside the country and 200 kt of storage Full utilization of grain silos
elevators at the port of Illichivsk. The usual capacity utilization rate of those stood at 65- reported in 2009FY
70% in 2005-07FY but jumped to 105% in 2009FY thanks to a bumper harvest of grain
crops in Ukraine (48 Mt). We forecast Kernel’s storage capacity utilization rate to
average 70% in 2010FY based on satisfactory harvest projections and total 65% in 2011-
16FY, reflecting historical cyclicality of grain crop harvests. We estimated Kernel’s silo
service fee (storage, drying, fungiciding, etc.) at $20/t in 2009FY and at $19/t over 2010-
16FY.

June 5, 2009
FARMING
As of May 15, 2009, Kernel completed crop sowing on 85,000 ha of land for this year’s Kernel planted 85,000 ha of land
harvesting, with 30% of the total area allocated for wheat and 20% for sunflower seed. for 2009 harvest
In 2008, the company harvested 265 kt of grain and exported almost all of it through its
grain trading division. In 2009, we forecast Kernel to harvest about 280 kt of grain crops
(+6% y-o-y), including 40 kt of sunflower seeds.
In 2009FY, we estimate Kernel’s average crop prices at $165/t for wheat (net of VAT; - Crop price assumptions
28% y-o-y), $145/t for rye (-15%), $175/t for barley (-12%), $217/t for peas (-13%),
$267/t for buckwheat (-27%), $85/t for corn (-62%), $355/t for soybeans (-21%) and
$225/t for sunflower seeds (-59%). Kernel’s farming division sells all its crops within
two months during and after the harvesting period to its own grain trading division at
average market prices. We projected its crop prices to be unchanged in 2011-16FY to
reflect the net effect of agricultural markets’ cyclicality.
REVENUE AND PROFITABILITY FORECASTS

Based on the operating assumptions described above, we forecast Kernel to increase net We forecast Kernel to increase
sales by 73% y-o-y to $1.1bn in 2009FY and record a 5% sales CAGR in 2010-16FY, to net sales at a 5% CAGR
$1.6bn in 2016FY. We estimate the company’s EBITDA margin at 17.7% in 2009FY (- in 2010-16FY
0.9pp y-o-y) thanks to a positive effect of hryvnia depreciation on the company’s
hryvnia-denominated production costs. In 2010-16FY, we expect no depreciation-
related impact due to a stable outlook for the hryvnia and forecast Kernel’s EBITDA
margin to fluctuate around 13%. We expect its net margin at around 9% over the
forecast period.
Net Sales ($m; lhs) Net Margin (%; rhs) Bulk Crude Oil & Meal Bottled Oil Silo Services
EBITDA Margin (%; rhs) Grain Trade Grain Transship ment Farming
2,000 20%
100%
1,500 15% 75%

54% 52% 49% 48% 49%
1,000 10% 50%

11% 11% 10% 10%
13%
500 5% 25%
33% 37% 38% 37%
28%
0 0% 0%
2009E 2010F 2011F 2012F 2013F 2009E 2010F 2011F 2012F 2013F
Kernel Holding Net Sales & Profitability Forecasts Kernel Holding Revenues Breakdown by Products
(2009-2013FY) (2009-2013FY)
Sources: Dragon Capital estimates Sources: Dragon Capital estimates
We expect crude sunflower oil/fodder meal and grain trade to remain the major Bulk crude sunflower oil and
revenue contributors for Kernel over the forecasted period, each accounting for about grain trade to remain the largest
35% and 50% of total sales, respectively. revenue contributors

June 5, 2009
Valuation
DCF MODEL AND SENSITIVITY ANALYSIS
We based our valuation model for Kernel Holding on the operating and financial DCF implies a fair value of
outlook described above. Our DCF valuation yielded a fair value estimate of $10.39/share
$10.39/share, or 6% above the stock’s current market price.
DCF Valuation ($m)
Year* 2009E 2010F 2011F 2012F 2013F 2014F 2015F 2016F
Sovereign Risk Free Rate 10.0% 10.0% 9.7% 9.1% 8.5% 7.9% 7.3% 7.0%
Equity Risk Premium 10.0% 9.7% 9.0% 8.3% 7.6% 6.9% 6.5% 6.5%
Company Risk Premium 2.5% 2.3% 2.0% 1.8% 1.5% 1.3% 1.3% 1.3%
Cost of Equity 22.5% 21.9% 20.7% 19.1% 17.6% 16.0% 15.1% 14.8%
Debt Premium 13.0% 13.0% 13.0% 13.0% 12.8% 12.6% 12.4% 12.2%
Effective Tax Rate 10.0% 10.0% 10.0% 15.0% 15.0% 15.0% 15.0% 15.0%
After-tax Cost of Debt 11.7% 11.7% 11.7% 11.1% 10.9% 10.7% 10.5% 10.4%
Weight of Equity 57% 72% 76% 82% 87% 91% 93% 94%
WACC (%) 17.9% 19.1% 18.5% 17.7% 16.7% 15.5% 14.7% 14.5%
Year* 2009E 2010F 2011F 2012F 2013F 2014F 2015F 2016F
EBIT Corrected for Tax 163.5 116.3 143.0 146.1 150.0 152.4 154.6 157.4
Depreciation 21.9 25.1 26.5 26.5 26.0 25.5 25.0 24.7
Change in Working Capital 47.3 (43.1) (51.1) (44.2) (37.2) (9.1) (7.7) (5.6)
CAPEX (70.2) (73.8) (45.2) (41.2) (40.8) (20.4) (20.0) (19.8)
Free Cash Flow to Firm 162.6 24.4 73.3 87.2 97.9 148.4 151.9 156.8
Discount Factor 0.85x 0.71x 0.60x 0.51x 0.44x 0.38x 0.33x 0.29x
Present Value of FCFF 137.9 17.4 44.0 44.5 42.9 56.2 50.2 45.2
PV of FCF ($m; 2009-16F) 438.4
FCF Growth Rate Beyond 2016F 3.0%
Terminal Value ($m; 2016F) 1,404.4 Fair Value ($m) g=1.0% g=2.0% g=3.0% g=4.0% g=5.0%
PV of Terminal Value ($m) 405.1 WACC-2.0% 796.6 845.0 903.6 975.9 1,067.6
Enterprise Value ($m) 843.5 WACC-1.0% 715.8 754.1 799.6 854.7 922.9
Net Debt (09E; $m) 129.3 WACC 647.4 678.1 714.1 757.0 809.0
Equity Value ($m) 714.4 WACC+1.0% 588.9 613.8 642.7 676.6 717.1
Shares Outstanding (mil.) 68.7 WACC+2.0% 538.2 558.7 582.2 609.4 641.4
Value per DR ($) 10.39
Note: All calculations are made for financial years, ended June annually
We tested our DCF valuation model for sensitivity to a 1% change in the free cash Sensitivity to changes in FCF
flow to firm (FCF) growth rate beyond 2016 and a 1% change in WACC over 2009- growth beyond 2016 and WACC
2016. The sensitivity analysis yielded a fair value range of $538.2m-$1,067.6m.

June 5, 2009
COMPARATIVE VALUATION
Our comparative valuation of Kernel Holding, based on 2009E-2010F EV/EBITDA Comparative valuation implies a
and P/E of the company’s foreign peers, yielded a fair value estimate of fair value of $21.03/share
$21.03/share, or 114% above its current market price.
Comparative Valuation: Kernel Holding vs. International Peers

Company Price* Currency MC EV/EBITDA P/E
$m 2009FY 2010FY 2009FY 2010FY
Kernel Holding 9.8 USD 675 4.0 3.9 5.5 7.5
Premium(Discount) to DM Peers' Median (85%) (39%) (38%) (55%) (46%)
Premium(Discount) to GEM Peers’ Median 786% (57%) (52%) (61%) (56%)
Developed Market Peers
ABB Grain (AU) 9.2 AUD 1,261 12.8 9.0 26.5 15.7
Graincorp (AU) 7.5 AUD 444 7.6 6.2 14.7 10.1
Vittera (CA) 9.3 CAD 1,999 5.7 3.8 15.2 11.7
Andersons (US) 26.5 USD 482 7.2 6.4 13.5 11.5
Bunge (US) 64.1 USD 7,823 7.7 6.2 11.9 9.5
Archer-Daniels-Midland (US) 27.8 USD 17,848 6.2 7.7 8.9 11.3
DM Peers’ Average - - 4,976 7.4 6.3 14.1 11.4
Emerging Market Peers
China Foods (HK) 4.8 HKD 1,729 10.0 8.2 19.9 16.5
Elstar Oils (PL) 5.4 PLN 81 10.4 8.1 11.6 10.4
EM Peers’ Average - - 905 10.2 8.2 15.7 13.5
Notes: *Prices as of June 5, 2009. Source: Dragon Capital, Bloomberg, Companies
RECOMMENDATION
The average of the DCF and comparative valuation estimates put our fair valuation of We rate Kernel Holding
Kernel at $15.71/share, or 60% above the stock’s current market price. We thus assign as a Buy
a Buy recommendation to Kernel Holding.
Share Price (lhs)

25.0 Upside Potential (rhs) 150%
21.03
20.0 125%
100%
Upside Potential (%)
Share Price (USD)
15.0 114%
9.83 10.39 75%
10.0
50%
5.0 6% 25%
0%
0.0 0%
Current Price DCF CV
Kernel Holding Fair Value Estimates

Source: Dragon Capital

June 5, 2009
Risks
Kernel’s ability to obtain raw materials in a timely manner and in sufficient Weather risk:
quantities may be affected by natural conditions, including among others, drought, moderate
flood, unexpected or heavy frost and hurricanes, and other unpredictable factors
such as crop allocation, plantings, government farm programs and policies. Such
factors may cause deliveries of raw materials to be delayed or unavailable to Kernel
and may adversely affect its business, results of operations and financial condition.
Selling prices for Kernel’s oils and grain products and operating costs associated Prices fluctuation risk:
therewith are volatile and are determined by market conditions. Among the key moderate
factors affecting the market are the availability and supply of raw materials, the
weather, crop yields and governmental regulations. If any or all of these factors
depress selling prices or increase Kernel’s operating costs and business, results of
operations and financial condition may be adversely affected.
Kernel Holding is subject to risks relating to food, grain, oil and protein meal Product quality requirements:
quality requirements and regulations which include, but are not limited to, product low
spoilage or contamination, industry or government regulations, including
processing and labeling regulations, and which may result in potential product
liability claims. These matters could adversely affect Kernel’s revenues and
operating results.
Due to the seasonal nature of Kernel’s business, the company requires high levels Financing risk:
of financing in the period immediately following the harvest to support the moderate
purchase of raw materials as they become available. Kernel fulfills its seasonal
financing requirements by obtaining short-term credit lines from commercial
banks, which are repaid in the course of the financial year on the condition that
Kernel’s sales to customers are timely settled. If the majority of the company’s
customers were unable or unwilling to fulfill their payment obligations in a timely
manner, Kernel would be forced to repay its short-term credit lines from other
resources, thus jeopardizing its liquidity.
Fluctuations in the value of USD, Kernel’s reporting currency, against other F/X risk:
currencies, such as UAH and EUR, have in the past had, and may have in the high
future, an adverse effect on Kernel’s results. Approximately 70-80% of Kernel’s
sales are invoiced in USD for goods sold on the international markets. The
remaining 20-30% are sales of bottled oil and domestic agro services. The results of
domestic operations are reported in UAH and then converted into USD at
applicable exchange rates for inclusion in the company’s consolidated financial
statements. Moreover, although the vast majority of loan facilities extended to
Kernel Holding are denominated in USD, some loan facilities are also denominated
in UAH and EUR. A decline in the value of these currencies compared to USD
would have a negative effect on Kernel’s results.
Under Ukrainian law, producers of agro products are permitted to choose between Tax exemption regime
general taxation regime (income tax rate of 25%) and special taxation (fixed cancellation risk:
agricultural tax (FAT)). FAT is paid in lieu of corporate income tax, land tax, duties low
for special use of water objects, municipal tax, duties for geological survey works
and duties for trade patents. Kernel Holding is a FAT payer. If the FAT regime is
lifted, Kernel Holding would pay corporate income tax at the standard rate of 25%
currently, as well as other tax and duties listed above, which would have a material
adverse affect on Kernel’s financials.

June 5, 2009
Agricultural markets and agricultural production generally are subject to Political risk:
prevailing political and social policies. At times, governments impose production high
and selling restrictions and limitations in the form of quotas, tariffs and other
mechanisms to protect national producers both at international and domestic
levels. These restrictions and limitations can affect volumes and prices in national,
regional and world markets. There is no guarantee that the Ukrainian government
will impose protectionism measures. Any change in government regulations or
legislation in Kernel’s market, the markets in which the company competes, or in
the markets of Kernel’s competitors could adversely affect the business, results of
operations and financial condition.

June 5, 2009
Financial & Operating Summary

Operating Summary
Period 2008FY 2009FYE 2010FYF 2011FYF 2012FYF
Bulk Crude Sunflower Oil (‘000 t) 304 419 517 621 677
Growth (%, y-o-y) 38% 24% 20% 9%
Bottled Oil (‘000 t) 95 111 113 122 123
Growth (%, y-o-y) 17% 1% 8% 1%
Grain Trade (‘000 t) 317 2,250 2,813 2,953 3,100
Growth (%, y-o-y) 610% 25% 5% 5%
Transshipment services (‘000 t) 1,617 1,500 1,500 1,500
Growth (%, y-o-y) (7%) 0% 0%
Farming (‘000 t) 150.4 265 282 423 563
Growth (%, y-o-y) 121% 76% 6% 50% 33%
Profit & Loss Statement ($m)

Net Sales 663.1 1,148.7 1,263.5 1,408.0 1,504.0
EBITDA 123.2 203.7 154.3 185.4 198.4
Depreciation (11.6 ) (21.9 ) (25.1 ) (26.5 ) (26.5 )
EBIT 111.6 181.7 129.2 158.9 171.9
Net Financial Income (Loss) (23.5 ) (36.0 ) (29.2 ) (25.5 ) (23.8 )
NIBT 91.2 135.7 100.0 133.4 148.1
Taxes 9.0 13.6 10.0 13.3 22.2
Net Income (Loss) 82.2 122.2 90.0 120.1 125.9
Balance Sheet ($m)
Total Assets 755.6 718.6 972.6 1,084.9 1,167.0
Fixed Assets 378.3 330.3 344.1 362.8 377.5
PPE 108.4 110.1 110.9 111.8 112.6
Current Assets 377.3 388.2 628.5 722.1 789.5
Inventories 144.7 105.1 119.7 132.9 142.1
Accounts Receivable 48.7 36.2 51.9 57.9 61.8
Cash & Cash Equivalents 88.5 122.2 323.5 363.9 387.3
Total Liabilities & Equity 755.6 718.6 972.6 1,084.9 1,167.0
Total Liabilities 315.2 354.3 334.4 326.6 282.8
Accounts Payable 5.5 9.7 11.6 12.9 13.8
S/T Debt 126.7 163.9 150.0 158.6 126.9
L/T Debt 91.1 107.0 96.3 77.1 61.7
Equity 440.4 364.3 638.2 758.3 884.2
Financial Ratios
Sales Growth (y-o-y) 89% 73% 10% 11% 7%
EBITDA Growth (y-o-y) 166% 65% (24%) 20% 7%
Net Income Growth (y-o-y) 342% 49% (26%) 33% 5%
EBITDA Margin 18.6% 17.7% 12.2% 13.2% 13.2%
Net Margin 12.4% 10.6% 7.1% 8.5% 8.4%
Net Debt/Equity 29% 41% (12%) (17%) (22%)
ROE 10.9% 17.0% 9.2% 11.1% 10.8%

June 5, 2009
Appendix 1: Kernel Holding Management Team

Founded Kernel in 1995 and has since held various executive positions at the Mr. Andrey Verevskyy,
company. In his current capacity of Chairman of the Board of Directors Mr. Honorary Chairman
Verevskyy oversees the strategic development and overall management of the
Group. He is the majority shareholder in the company (59.03%) through his wholly-
owned subsidiary Namsen Limited. Mr. Verevskyy has been a member of
Ukrainian parliament since 2002. He is a graduate of the Ukrainian Agrarian
University and speaks fluent Russian, Ukrainian and English.
Mrs. Usacheva is responsible for financial reporting and auditing, budgeting, Mrs. Anastasiya Usacheva, CMA,
capital resources planning and financial risk assessment. Prior to joining Kernel in CFM, Director of Financial
2003, for eight years Mrs. Usacheva was a chief financial officer of United Grain Department
Group, a Kyiv-based grain trading company. In 1993 she graduated from the
department of physics/mathematics at Poltava University and in 1994 from the
High School of Entrepreneurship at Kyiv Economic University with a diploma in
international business administration. In 2000 Mrs. Usacheva completed a
professional re-training program Practical Finance Management for Finance and Credit
program at the Russian Government Finance. She speaks fluent Russian, Ukrainian
and English.
Mr. Conrad joined Kernel in January 2003 and has since devoted his time primarily Mr. Patrick Conrad,
to business development and relations with Kernel’s various international Investor Relations and Business
commercial and financial partners. Prior to joining Kernel, Mr. Conrad was head of Development Director
corporate banking at HVB Bank Ukraine. Mr. Conrad graduated from HEC
Lausanne University with a degree in economics. He is a citizen of Switzerland and
speaks fluent French, Russian and English.
Before joining Kernel in 2005, worked for the Ramburs company. 1994 - graduated Mr. Konstantin Litvinski,
from Odessa Naval Engineering Institute, major: Engineer for shipment
Director of Trade Department
arrangements and management on sea transport. 1998 - graduated from the College
of Central London, Sea Management program. Fluent in Russian, Ukrainian,
English Responsibilities: export of grain crops, export of sunflower oil, elevator
operations, logistics, procurement of grain crops and sunflower seeds.

June 5, 2009
Appendix 2: Ukraine’s Vegetable Oil Market

The world market for vegetable oil continues to grow dynamically. According to A steadily growing market
the U.S. Department for Agriculture (USDA), global vegetable oil production
expanded by 62% over the last decade and is expected to reach 133 million tonnes
(Mt) in the 2008/09 marketing year (September-August).
Palm Oil Soybean oil Rapeseed oil Sunoil Other

140
120
100
80
60
40
20
0
'03/04 '04/05 '05/06 '06/07 '07/08 '08/09E
World Production of Major Vegetable Oils* (Mt)
Note: *Coconut, cottonseed, olive, palm, palm kernel, peanut, rapeseed, soybean and sunflower seed oils.
Source: USDA
World vegetable oil production is dominated by palm oil with 32% of total output in Sunflower oil accounts for 9% of
2008/09. Soybean oil follows with 27% and rapeseed and sunflower oils account for world vegetable oil production
15% and 9%, respectively.
The leading vegetable oil producers globally include Indonesia, Malaysia, China, the Ukraine is the second-largest
EU, the United States, Argentina, India, Brazil, Russia and Ukraine. The main sunflower oil producer
consumers are largely the same: China, the EU, India, the U.S., Indonesia, Malaysia, globally…
Brazil, Russia, Pakistan and Japan. In 2008/09, global vegetable oil exports are expected
to increase by 2% y-o-y to 53 Mt (40% of global production). According to USDA, in
2008/09 the group of leading exporters is expected to include Indonesia (31% of global
exports), Malaysia (29%), Argentina (12%), Brazil (4%), Ukraine (3.3%) and Canada
(2.8%).
Russia
22.1% Ukraine
20.7%
Others
19.9%
EU-27
Turkey 20.1%
4.8% Argentina
12.5%
World Sunflower Oil Producers (2008/09)

Source: USDA
Ukraine is one of the largest sunflower oil producers in the world. In 2008/09, global …and top exporter
sunflower oil output is projected at 11.4 Mt, 21% of which is expected to be produced in
Ukraine. The country is also expected to rank first among world sunflower oil exporters
with 46% of total exports (1.7 Mt) in 2008/09.

June 5, 2009
Producers ‘000 tonnes % of total Exporters ‘000 tonnes % of total

Russia 7,350 22.8% Ukraine 450 23.9%
EU-27 6,750 20.9% EU-27 350 18.6%
Ukraine 6,500 20.2% Russia 250 13.3%
Argentina 2,500 7.8% Argentina 45 2.4%
Turkey 830 2.6% Turkey 5 0.3%
Others 8,291 25.7% Others 781 41.5%
Total 32,221 100.0% Total 1,881 100.0%
World Sunflower Seed Production in 2008/09 World Sunflower Seed Exports in 2008/09
Source: USDA Source: USDA
Producers ‘000 tonnes % of total Exporters ‘000 tonnes % of total

Russia 2,520 22.1% Ukraine 1,700 43.0%
Ukraine 2,369 20.7% Argentina 1,040 26.3%
EU-27 2,290 20.0% Russia 670 16.9%
Argentina 1,425 12.5% EU-27 130 3.3%
Turkey 544 4.8% Turkey 100 2.5%
Others 2,277 19.9% Others 313 7.9%
Total 11,425 100.0% Total 3,953 100.0%
World Sunflower Oil Production in 2008/09 World Sunflower Oil Exports in 2008/09
Source: USDA Source: USDA
Sunflower has historically been a major oilseed crop in Ukraine thanks to the country’s Ukraine more than doubled the
favorable weather conditions, fertile soil and high profitability of this crop. The area area under sunflower in the last
under sunflower increased to 4.3 million ha (25% of the total area sown) in 2008/09 15 years
from 1.6 million ha in 1990/91 (5% of total arable land at the time). Ukraine’s 2008/09
sunflower acreage accounted for 18% of the global area sown with sunflower seed over
the period. Annual sunflower crop yields in Ukraine have varied widely, with the
lowest level of 0.89 t/ha registered in 2004/05 and the highest, 1.5 t/ha, in 2008/09.
This compares poorly with the performance of world leaders such as Austria (up to 2.5
t/ha).
Production (Mt; lhs) Exports (Mt; lhs)

7.0 5.0
Area (Mha; rhs)
6.0
4.0
5.0
4.0 3.0
3.0 2.0
2.0
1.0
1.0
0.0 0.0
'02/03 '03/04 '04/05 '05/06 '06/07 '07/08 '08/09E
Ukraine Sunflower Seed Production and Exports

Source: UkrAgroConsult
Despite all the advantages of growing sunflower, local agricultural producers have Production of soybean and
been increasing acreage under soybean and rapeseed due to natural constraints on rapeseed is increasing
further expansion of sunflower cultivation. The problem is that sunflower exhausts soil,
and the same land can be used for sunflower cultivation every 6-7 years only, making
this business highly dependent on productivity enhancement. At the same time, land
under soy and rapeseed requires much less time for renewal (two and three years,
respectively). In 2008/09, soybeans in Ukraine were sown on 0.54 Mha (almost flat y-o-
y). Rapeseed occupied over 1.4 Mha in 2008/09 (+72.5% y-o-y), reflecting increased
demand for biodiesel.

June 5, 2009
Only a small volume of sunflower seed harvested in Ukraine is exported (est. 7% of the About 95% of sunflower seed
total harvest in 2008/09). The rest is processed domestically for sunflower oil and oil produced in Ukraine is processed
cake. domestically…
3.5 1.5 0.9 Production (Mt; lhs) 0.8

Production (Mt; lhs) 0.8 Export (Mt; lhs) 0.7
3.0
Export (Mt; lhs) 1.2 0.7
2.5 Area (Mha; rhs) 0.6
0.6 0.5
2.0 Area (Mha; rhs) 0.9
0.5
0.4
1.5 0.6 0.4
0.3 0.3
1.0 0.2
0.3 0.2
0.5 0.1 0.1
0.0 0 0.0 0
'03/04 '04/05 '05/06 '06/07 '07/08 '08/09E '03/04 '04/05 '05/06 '06/07 '07/08 '08/09E
Ukraine Rapeseed Production and Export Ukraine Soybean Production and Export
Prior to Ukraine’s accession to the WTO last year, exports of sunflower seeds from the …as exports are regulated…
country had been limited by a high export duty of 17%, in effect since 2001, and
minimum indicative export prices set by the government. The export barriers were
intended to support local vegetable oil producers and encourage exports of higher
value-added products (i.e. vegetable oil instead of sunflower seed). While such
restrictions benefited oil producers, they hurt agricultural companies’ margins. As part
of its WTO commitments, Ukraine undertook to reduce the sunflower seed export duty
by 1.0pp annually until it reached 10%. The government also abolished minimum
indicative export prices for sunflower seeds.
Unlike sunflower seed, about 30-40% of soybean and 85-90% of rapeseed crops …but large volumes of soybean
collected in Ukraine are exported as local demand is currently weak. We expect new and rapeseed are exported
domestic capacity for deep soybean processing to encourage agricultural producers to
increase their share of domestic sales.
International trader Cargill exports almost 30% of Ukraine’s sunflower oil, followed by Major sunflower oil exporters in
domestic sunflower oil producer Allseeds with a 13% share. Another vertically Ukraine
integrated Ukrainian company, Kernel, is third with 11%.
Allseeds India
13.0% Kernel Holding 19%
11.0%
Turkey
Cargill Bunge EU-27 14%
28.0% 9.0% 29%
Egypt
8%
Others
39.0% Others
30%
Bulk Sunflower Oil Exporters in Ukraine (2008/09E) Ukraine Bulk Sunflower Oil Export Destinations
Source: Kernel Holding (volume; 2008/09E)
Source: SSC

June 5, 2009
The EU is the largest importer of Ukrainian sunflower oil with a 29% share in total The EU is a major importer of
exports in 2008/09. The Netherlands alone consumed 6.3% of Ukrainian sunflower oil Ukrainian sunflower oil
exports in the previous season.
Domestic sunflower seed producers, similar to grain growers, continue to enjoy Preferences from the state
government support, including tax benefits and subsidized loans. Additionally,
parliament recently refused to allow duty-free exports of sunflower seed, which is
positive for domestic sunflower oil producers. We expect no new restrictions on exports
of sunflower oil from Ukraine following the country’s entry to the WTO.
Domestic sunflower oil producers are expected to benefit from the hryvnia depreciation 2009 outlook
as they are predominantly exporters and 90-95% of their costs are denominated in
hryvnia. Domestic sunflower seed prices follow respective world prices with a few
months’ delay, implying a time advantage for local vegetable oil producers. We thus
expect domestic sunflower processors to enjoy stable profit margins in 2009 provided
that export conditions are favorable

June 5, 2009
Appendix 2: Kernel Site Visit (April 2-3, 2009)
Myrhorod Elevator Myrhorod Elevator

Source: Dragon Capital Source: Dragon Capital



June 5, 2009
Poltava Oil Extraction Plant Poltava Oil Extraction Plant




June 5, 2009




June 5, 2009
Poltava Oil Extraction Plant Illichivsk Grain Transshipment Terminal

Illichivsk Grain Transshipment Terminal Illichivsk Grain Transshipment Terminal



June 5, 2009


Silo in Kirovohrad Region Silo in Kirovohrad Region


June 5, 2009
Farming Machinery Farming Machinery

Farming Machinery Winter Wheat Field

Farming Machinery Farming Machinery


June 5, 2009
DRAGON CAPITAL EQUITY RESEARCH COVERAGE POLICY
Investment Recommendations
Dragon Capital employs three basic recommendations to rate stocks under coverage: Buy, Hold and Sell. The recommendations
are assigned according to the table below.
Fair Value Upside to Current Market Price Recommendation

>50% Buy
0% – 50% Hold
<0% Sell
In addition, we may rate a stock as a Strong Buy in case its valuation upside exceeds 100%, there are no material risks that could
jeopardize our valuation and we see a high probability for the stock to outperform the market in the short-term perspective
based on available information and our fundamental valuation. Stocks that are either suspended from trading or do not have a
recommendation assigned by Dragon analysts are designated as Not Rated.
In case an analyst’s individual rating of a stock (please see definition below) is low, leaving it outside his/her top five
recommendations, this stock can be assigned only a Hold or Sell recommendation regardless of its upside suggested by
fundamental valuation.
We put a stock Under Review if its fair value and/or recommendation are subject to change based on latest financial results,
newly arisen risk factors, or other important events. We make all reasonable effort to reinstate recommendations and fair values
on stocks under review in the shortest possible time. Finally, we suspend a traded company from coverage in case Dragon
Capital signs an investment banking services mandate with such company (for example, to place its shares on the market).
Coverage is reinstated after the relevant investment banking transaction is closed.
Current Distribution of Investment Recommendations

Recommendation
Companies Covered
Buy Hold Sell Under Review Not Rated Suspended
119 9 23 16 0 68 3
% of Total 8% 19% 13% 0% 57% 3%
Dragon Capital also structures its universe of covered stocks using three parameters: liquidity, risk level and analyst’s view. The
ranking based on liquidity is used to select stocks that are assigned investment recommendations in addition to the three above
parameters.
Analyst’s View
In order to provide for our analysts’ views on the stocks they cover, each analyst ranks all stocks in his or her coverage universe
(usually for stocks from more than one sector), assigning #1 to his/her top pick, #2 to the next-best pick and so on. In addition to
pure financial modeling, such rankings are based on the analysis of a broader set of factors that may not be captured by
valuation, including relative comparison of company-specific opportunities, threats, etc.
Liquidity
We split our coverage universe into three tiers:
1) Relatively liquid stocks
2) Less liquid stocks
3) Illiquid stocks
We determine the liquidity rank based on available historical trading statistics and our estimates of trading activity not reported
officially (e.g. over-the-counter transactions). Stocks on the third (illiquid) list are not assigned recommendations and are
designated as Not Rated. The composition of liquidity tiers is subject to a semiannual review but substantial market-wide or
company-specific developments may warrant a more frequent revision.
Risk Grade
We apply two risk measurements: higher risk (HR) and lower risk (LR). We assign the higher risk grade to a stock in case of a
substantial degree of uncertainty in relevant valuation assumptions and volatility in valuation estimates (i.e. when different
valuation approaches result in divergent recommendations). Conversely, we consider a stock to be in lower-risk territory if
relevant valuation assumptions are more certain, different valuation methods suggest uniform recommendations and the analyst
covering the stock in question does not see significant short-term risks attached to it.

June 5, 2009
RESEARCH
36D Saksahanskoho, Director, Research

01 033 Kyiv, Ukraine Andriy Bespyatov, PhD, CFA
bespyatov@dragon-capital.com
Tel.: (+380 44) 490 7120
Fax: (+380 44) 490 7121
Economics Electricity
www.dragon-capital.ua Olena Bilan Dennis Sakva
bilan@dragon-capital.com sakva@dragon-capital.com
Managing Director
Tomáš Fiala Politics Oil & Gas
fiala@dragon-capital.com Viktor Luhovyk Dennis Sakva
luhovyk@dragon-capital.com sakva@dragon-capital.com
Andriy Bespyatov
SALES Banking, Insurance bespyatov@dragon-capital.com
Vitaliy Vavryshchuk
Managing Director, vavryshchuk@dragon-capital.com Fixed Income
Head of Trading and Domestic Sales Olga Slyvynska
Dmytro Tarabakin Metals & Mining slyvynska@dragon-capital.com
tarabakin@dragon-capital.com Sergiy Gayda
gayda@dragon-capital.com Editing
Managing Director, Viktor Luhovyk
International Equity Sales Chemicals, Food & Agriculture, luhovyk@dragon-capital.com
Peter Bobrinsky FMCG
bobrinsky@dragon-capital.com Tamara Levchenko Research Assistants
levchenko@dragon-capital.com Volodymyr Skepskiy
Managing Director, Fixed Income skepskiy@dragon-capital.com
Dray Simpson Machine-Building, Real Estate, Olga Slyvynska
simpson@dragon-capital.com Telecommunications slyvynska@dragon-capital.com
Taisiya Shepetko
Director, Equity Sales shepetko@dragon-capital.com
Andriy Dmytrenko, CFA
dmytrenko@dragon-capital.com
Director, Trading and Domestic Sales

Denis Matsuyev
matsuyev@dragon-capital.com
Senior Associate, International Sales

Fyodor Bagnenko
bagnenko@dragon-capital.com
Fixed Income Trading

Svitlana Rusakova
rusakova@dragon-capital.com
DISCLAIMER
This report has been prepared by Dragon Capital for information purposes only and is not an offer or solicitation to deal in any security. The
opinions, forecasts and estimates in this report reflect our good-faith judgment as of the date of publication, and may change without notice.
Although the information in this report comes from sources we believe to be reliable, and although we have made every effort to ensure its
accuracy at the time of publication, we make no warranty, express or implied, of this report's usefulness in predicting the future performance, or
in estimating the current or future value, of any security. Nor should this report be regarded as a complete description of the securities or
markets referred to herein. Any opinions expressed herein may differ from opinions on the same subject expressed by other business
departments of Dragon Capital as a result of employing different assumptions or methodology. Any investment decision made on the basis of
this report shall be made at the investor's sole discretion, and under no circumstances shall Dragon Capital or any of its employees or related
parties be liable in any way for any action, or failure to act, by any party, on the basis of this report. Nor shall Dragon Capital or any of its
employees or related parties be liable in any way for any loss or damages arising from such action or failure to act.
Dragon Capital does and seeks to do business with companies covered in its research reports. Investors should therefore be aware of a potential
conflict of interest.
Additional information on securities or companies discussed in this report is available upon request. This report may not be reproduced without
the prior written permission of Dragon Capital; when quoting, please cite Dragon Capital.

Dragon Capital 200906

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Dragon Capital 200906

Uploaded by

Copyright:

Available Formats

EQUITY RESEARCH

Food & Beverage/

INITIATION OF COVERAGE June 5, 2009

The Sun in a Bottle

Analyst: Tamara Levchenko Email: research@dragon-capital.com

Kernel Holding: Initiation of Coverage Fair Value ($) 15.71

Highlights Sell Hold Buy

Kernel Holding: The Sun in a Bottle 2

Kernel Holding Overview 4

Operating & Financial Outlook 17

Operating & Financial Summary 25

Appendix 1: Kernel Holding Management Team 26

Appendix 2: Ukraine’s Vegetable Oil Market 27

Appendix 3: Kernel Site Visit (Apr. 2-3, 2009) 31

Kernel Holding: The Sun in a Bottle 3

Kernel Holding Overview

Grain & oilseeds

Logistics & Storage

Bottled sunflower oil

Kernel Business Structure*

Kernel Holding: The Sun in a Bottle 4

Allseeds Oil Extraction Plant Capacity (kt/year)

Kernel Holding: The Sun in a Bottle 5

Ukraine Bulk Sunflower Oil Export Destinations

Chumak Schedry Dar

Oleina (Bunge) Stozhar (Kernel)

Kernel Holding: The Sun in a Bottle 6

Kernel Holding Transport Usage

95 200 Refined Sun Oil Sale s (kt)

Kernel Holding: The Sun in a Bottle 7

Ukraine Sunflower Seed and Oil Avg. Price Dynamics (2008-May’09)

2,250 Bulk Sunflower Oil Prices ($/t, incl. VAT, EXW)

Kernel Holding: The Sun in a Bottle 8

Bottled Sunflower Oil Prices ($/t, incl. VAT; EXW)

Kernel Holding: The Sun in a Bottle 9

Kernel Holding: The Sun in a Bottle 10

GRAIN EXPORT, SILO SERVICES & FARMING

Kernel Holding: The Sun in a Bottle 11

Kernel Holding: The Sun in a Bottle 12

Kernel Holding Acreage Breakdown

Kernel Holding: The Sun in a Bottle 13

2008FY AND 9M09FY FINANCIAL OVERVIEW*

Net Sales ($m; lhs) EBITDA margin (%; rhs)

Kernel Holding: The Sun in a Bottle 14

21% 23% 25%

Kernel Holding EBIT Margin Breakdown by Product (9M08FY-9M09FY)

Bottled Grain Silo

Kernel Holding: The Sun in a Bottle 15

Kernel Holding 17.7%

ABB Grain 7.1%

0% 5% 10% 15% 20%

Kernel Holding: The Sun in a Bottle 16

Operating & Financial Outlook

2,000 Poltava Prykolotne Volchansk Bandurka (multi-seed)

Kernel Holding Crushing Capacities (2008FY-2011FYF)

Kernel Holding: The Sun in a Bottle 17

Fodder Meal Output (kt)

175 Bottled Oil Sales (kt) Refined Oil Sales (kt)

Kernel Holding: The Sun in a Bottle 18

Kernel Holding Prices (2008-2013FY)

GRAIN TRADE, TRANSSHIPMENT AND SILO SERVICES

Grain Trade (kt; lhs) Grain Transshipment (kt; lhs)

Kernel Holding: The Sun in a Bottle 19